Yesterday Representatives Joe Courtney (D-CT), Mike Kelly (R-PA), Suzan DelBene (D-WA) and Elise Stefanik (R-NY) introduced H.R. 748, bipartisan legislation to repeal the ACA’s Cadillac Tax, which will impose a 40% excise tax on health plans that exceed certain cost thresholds beginning in 2022. Originally set to take effect in January 2018, the Cadillac Tax has been twice delayed, after the enactment of NAHU-supported measures last January and in 2015. We are continuing to advocate a full repeal of the tax as Americans are already seeing drastic cuts to their health insurance benefits as employers plan for that tax to take effect. NAHU will be activating our grassroots Operation Shout platform encouraging members of Congress to support this bill once the Senate companion is introduced in the coming weeks.|
The Cadillac Tax calls for a 40% excise tax on the amount of the aggregate monthly premium of each primary insured individual that exceeds the year’s applicable dollar limit, which will be adjusted annually to the Consumer Price Index plus one percent initially and then CPI. Given that the pace of medical inflation is well beyond that of general inflation, the tax is destined to outgrow itself in short order and many employers will be impacted by the cost of the tax and the enormous compliance burden that the tax creates. Studies project that as many as 60% of employers will be subjected to the tax by 2022. Because of the projected wide-reaching effect of the tax, many employers may be deterred from offering coverage.Employers are making plan-design decisions years in advance as a way to avoid making drastic changes in their employees’ benefits when the tax is set to take effect. According to a Mercer study, a majority of plans (60%) are projected to be impacted by 2022, and a study by Towers Watson estimates that the tax could hit 82% of businesses by 2023. Many employers will attempt to find ways to avoid paying the tax as much as possible, which could mean offering less generous coverage (part of the intent of the tax) but also shifting the burden onto the employees/consumers of care. This could be through higher co-pays and co-insurance or by making employees pay a greater portion of the premium—trends that we are already seeing even without the tax. The tax would exacerbate this and put greater pressure on already stretched consumers.
Other plan-design changes being considered by employers include making cuts to cost-containing elements like on-site clinics, HSAs and FSAs, as the tax takes into account all components of a plan. Employers also have to contend with things outside of the plan’s control like family size, state benefit mandates, geographic rating, age, health status and the size of the employer, meaning that many plans could exceed the threshold without necessarily being benefit-rich. The intent of the tax is to discourage rich benefit plans, but even moderate plans could be subjected, forcing Americans to face greater cost-shifting with each subsequent year.
Additionally, employers with collective bargaining agreements need even greater lead time to plan for benefit changes than traditional employers. NAHU has found that many of these employers have already begun reducing benefits and increasing cost-sharing on employees. Increasing cost-sharing harms lower-income and middle-class Americans the most, as they are least prepared to handle the higher premiums and deductibles, often resulting in delayed treatment that costs more in the long term.
NAHU strongly supports legislation that will fully repeal this tax, prevent any additional cost-shifting onto employees or the cancellation of group coverage altogether as employers seek relief from the impending tax, and provide immediate relief for Americans who receive employer-sponsored insurance.